What is the Put-Option? 

Investors holding virtual shares have the right to return these to the startup in exchange for compensation (put option). It is important to note that the startup may restrict the put option in the contracts, which means that, in each case, it must be assessed whether it is actually applicable.

The form of compensation for the put option, however, is determined by the startup.

There are three ways in which investors can be compensated under the put option:

The company decides in this case whether

• the value of the virtual shares will be paid out in cash at the current market price,
• the value of the virtual shares will be distributed in the form of shares, or
• new GmbH (limited liability company) shares will be offered to investors. This is also referred to as a conversion.
• The market price is determined by the company’s current valuation.
• *If a conversion of the legal form from GmbH to AG (stock corporation) has already taken place or is planned within the next 9 months.

Investors who have converted their virtual shares into real shares must, if requested by the startup, be pooled. This ensures clarity and manageability of the cap table. Pooling can be achieved through a traditional SPV or through a contractual arrangement governing voting rights, etc. In practice, our experience shows that the majority of investors prefer to hold virtual shares due to their tradability, and the put option is only used in rare cases.

Since exercising the option typically provides no economic advantage—and in fact significantly restricts the transferability of the investment—it is often only meaningful from an investor’s perspective if they wish to benefit from legally secured participation rights and/or enhanced information rights associated with GmbH shares. In this case, investors must also keep in mind that participation rights in practice only become meaningful once a significant number of virtual or GmbH shares are held.

To ensure that the put option does not create unnecessary workload and costs, the model contract provided by Tokenize.it stipulates that the put option can be exercised by investors as a standard only once per quarter. The last day of the quarter serves as the effective date for exercising the put option.

From this date, investors have one week to notify the company that they wish to exercise the put option. They must also indicate the number of virtual shares they intend to return. Only whole virtual shares may be returned, not fractions such as 0.345.

Restrictions of the Put Option

In addition, the company can impose further restrictions on the put option, meaning that in each case, it must be assessed whether it can actually be applied. Two options are available to the company for this purpose, which can be adjusted in the provided model contracts:

1. The company may determine the earliest point in time from which the put option can be exercised. This point in time is freely selectable, so that, for example, exercising the put option may only be possible once an exit is planned.
2. The company may set a minimum number of virtual shares an investor must hold in order to exercise the put option. This threshold can be set relatively high, allowing only larger investors to make use of the put option.

Calculation Example for Exercising the Put Option

After the put option has been exercised, the company has 6 weeks to determine the value of the returned virtual shares and inform the investors who exercised the option.

The value of the virtual shares is determined in the model contract as follows:

• If the company has been converted into an AG and the shares are actively traded, the average trading price of the shares is used.
• If this is not the case, the value is determined based on the highest of the following three methods:
  1. The valuation of a relevant financing round conducted within the last 12 months.
  2. The average trading price of the virtual shares, if they have been actively traded.
  3. If neither option 1 nor 2 applies, a valuation by an independent auditing firm is recommended. Investors also have the right to commission their own valuation at their own expense. In this case, the final price is determined as the average of both valuations.

Finally, investors have the right to withdraw their exercise of the put option within one month after notification of the valuation of the returned virtual shares. In such a case, they may continue to hold the virtual shares.